Another 18 months to fix Balfour Beatty’s UK business

Balfour Beatty has said it is likely to take another 12 to 18 months to fix the problems in its £2.8bn turnover UK construction business after the firm announced a fresh £30m profit warning this week, the bulk of which was focused on its M&E business.

The managing director of Balfour Beatty Engineering Services (BBES), Phil McGuire, stepped down with immediate effect this week following what Balfour Beatty described as a “deep and vigorous” review that identified a £20m forecast profit shortfall in the business.

The forecast profit shortfall at £300m-turnover BBES constituted the bulk of the £30m profit warning announced to the City on Tuesday (7 May), with the remaining £10m forecast shortfall focused on six problem jobs in the firm’s major building projects business.

The profit warning followed a £50m profit warning in April 2013 which rose to £60m in the firm’s results for year to 31 December 2013.

Speaking to Building following this week’s announcements, Balfour Beatty’s UK construction chief executive Nick Pollard (pictured) said the review of the M&E business had identified “some operational and commercial issues on some of the M&E contracts”, as well as “some unwarranted optimism in terms of our risk position”.

He said this, combined with a “slower than anticipated market recovery”, meant the “profit forecast for this year has been diminished”.

He said he was confident the £20m forecast profit shortfall had captured the extent of the problems. “But I’d be crazy to sit here and promise there will never be a loss making project in future - construction is intrinsically a high risk business,” he added.

Pollard said he would take up the BBES managing director role on an interim basis until a permanent replacement was appointed.

McGuire – who joined Balfour Beatty group chief executive Andrew McNaughton in leaving the firm this week – had been with the company for 35 years and was given the role of heading up the firm’s new M&E business stream as part of the restructure unveiled in 2012.

His departure follows a series of major changes at the M&E business in recent weeks, with three of the five regional engineering services directors replaced at the South, North-east and North-west operations, while one of Network Rail’s main project directors, Uma Shanker, was appointed to BBES in a new role as chief operating officer.

Pollard said McGuire and McNaughton’s departures were about “taking ownership” for the problems identified in this week’s trading update.

He said: “Phil [McGuire], as the managing director, was responsible for the operational controls and commercial controls inside BBES and he was the leader of that business and it was his responsibility as a leader to hold himself to account.

“And that is the same as Andrew [McNaughton] as leader of our group - and sad though as it is, that is normal in business.”

Pollard, appointed last June, said he would not be resigning as he was appointed to fix the problems in the UK construction business - a task he said would take “another 12 to 18 months”.

“I was recruited to work through this series of issues that appear to have been long-standing ones within the business and that’s exactly what I’ve been doing – helping the team work through those issues and deliver a change in performance,” he said.